Mama mia!
Nick, you understand the basics of shorting, where you profit by selling high and buying back low. You do this by *borrowing* stock, which you then sell in the market. Typically, with a big brokerage house, the stock comes from another account with your own broker. That's why shorting is done on margin: you pay interest on the borrowed stock. If a broker doesn't have stock available for you to borrow for your short, the brokerage can rustle up stock in other ways: from other brokers or mutual funds.
One relatively unlikely occurance to be aware of: if there is no stock available and the account from which you've borrowed for your short wants to sell, you may get caught in a buy in. Then you'd have to buy in the open market at whatever price prevailed to replace the borrowed stock. Also, you may have heard the phrase "short squeeze." When a lot of shares are short, especially in a small float, if the stock rises, a lot of shortsellers may "cover," or buy to liquidate their shorts, which sends prices still higher. Shorting can be a dangerous game.
For more info, when you're in a bookstore look for Katherine Staley's book "The Art of Short Selling."
J |
